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Euro zone manufacturing downturn deepens in April

Source: Reuters - Wed 2th May 2012
Euro zone manufacturing downturn deepens in April

The euro zone's manufacturing sector slipped further into decline last month as a downturn that started in the periphery appears to be taking root among core members France and Germany, a survey showed on Wednesday.

Manufacturers in the euro zone cut workers at the fastest pace in more than two years in April after new orders fell for the 11th straight month, suggesting a gloomy outlook for the sector, which drove a large part of the bloc's recovery from the last recession.

Markit's Eurozone Manufacturing Purchasing Managers' Index (PMI) dropped to 45.9 from 47.7 in March, slightly below a preliminary reading and marking its lowest reading since June 2009.

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It has been below the 50 mark that divides growth from contraction for 9 months.

“Manufacturing in the euro zone took a further lurch deeper into a new recession in April," said Chris Williamson, chief economist at data compiler Markit.

The PMI's output sub-index slumped to 46.1 from March's 48.7 and below a flash reading of 46.4, chalking up a 5 month low.

Earlier data from Germany, Europe's largest economy, showed its manufacturing sector contracted for a second successive month in April and it was a similar picture in neighboring France.

In Italy, the bloc's third-largest economy, the sector contracted for the ninth month while in Spain, facing deep government spending cuts in an uphill battle to trim the public deficit, activity declined at the fastest pace since June 2009.

“German manufacturing output showed a renewed decline, attributed by many firms to weak demand from southern Europe. As such, it is hard to see where growth will come from in coming months, unless export demand picks up strongly from countries outside of the euro zone," Williamson said.

But that may not happen anytime soon.

China's HSBC PMI was below 50 for the 6th month running in April while a purchasing managers' survey for Britain, a major trading partner of the euro zone and which has fallen back into recession, showed UK manufacturing barely expanded last month.

Data from the United States though was surprisingly upbeat as the pace of factory growth picked up last month at a faster pace than any of the 74 economists polled by Reuters had predicted.

REGION IN RECESSION

Only a handful of economies in the 17-member euro zone are still growing and the currency bloc as a whole is expected to languish in a mild recession until the 3rd quarter of this year, a Reuters poll showed last month.

Inflation though is seen dropping back to the European Central Bank's 2% target ceiling in the July quarter, which could give the ECB room to support euro zone countries.

A Reuters poll taken last week suggests the ECB will restart its government bond-buying program within the next 3 months.

The ECB reactivated the bond-buying program last August after a 4 month break when Italy and Spain began to get dragged into the eye of the debt storm, but the program is on hold at the moment.

The bank has also pumped more than 1 trillion euros of cheap money into the banking system through two offers of cheap 3 year loans and cut interest rates to a record low of 1.0% in December to stimulate growth after raising them earlier in the year.

Despite the additional stimulus the PMI's euro zone employment index slumped to 47.6 in April, from 48.7 in March, its lowest reading since February 2010 as firms slashed their workforces to contain costs.